Supreme Court

Supreme Court Permits Bankruptcy Court to Hear Adversary Proceeding; Bypasses Issues Regarding Party Consent

On June 9, the Supreme Court held that a bankruptcy judge may submit proposed findings of fact and conclusions of law for review by a federal district court in otherwise “core” adversary proceedings where a non-debtor party has not consented to bankruptcy court jurisdiction.  While a federal district court does not need to conduct the initial hearing, the district court must review the matter de novo prior to entering a final judgment.  See Executive Benefits Insurance Agency v. Arkison (In re Bellingham Insurance Agency), ___ U.S. ___ (2014).

The Supreme Court, however, did not address whether a bankruptcy court may exercise the federal judicial power under Article III by entering a final judgment against a non-creditor based on its consent, and, if so, whether “implied consent” can also satisfy the requirements of Article III.  Many commentators anticipated that the Supreme Court would resolve this issue.  Instead, the Supreme Court found that it was unnecessary to address the consent issue because the district court’s de novo review of the bankruptcy court’s order cured any potential error in the bankruptcy court’s judgment.  As a result, litigants will face continued uncertainty regarding their ability to waive their right to have a final judgment entered by an Article III court to avoid increased expense and delay.

Supreme Court Decision Janus Capital Group, Inc., et al. v. First Derivative Traders

On June 13, the Supreme Court issued a decision in favor of Janus Capital Group, Inc. (JCG) and Janus Capital Management LLC (JCM) in Janus Capital Group, Inc., et al. v. First Derivative Traders, a Rule 10b-5 private action brought by First Derivative Traders against JCG and its wholly owned subsidiary JCM. First Derivative Traders alleged that JCG and JCM were liable for material false statements in mutual fund prospectuses filed by Janus Investment Fund, a mutual fund for which JCM acted as the investment adviser. The Court held that for purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement. The Court found that Janus Investment Fund was a separate legal entity owned entirely by mutual fund investors and only one member of Janus Investment Fund’s board of trustees was associated with JCM and, accordingly, JCG and JCM did not have ultimate authority over the statements in question and were not liable under Rule 10b-5. The Court declined to reapportion this Rule 10b-5 liability despite the close relationship between investment advisers and the mutual funds they advise, stating that any such reallocation was the responsibility of Congress. SCOTUS Opinion.